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Will 2015 see more women on corporate boards?

HSBC Bank Canada Inc. is ahead of the curve when it comes to promoting women through its corporate ranks and into the boardroom.

There are 10 people on the board of directors at the Canadian arm of British banking giant HSBC; five are women. Women also hold more than half of the bank’s senior leadership roles – and are firmly at the helm of the bank’s commercial and retail banking businesses in Canada.

HSBC Canada, the largest foreign-owned bank in the country, didn’t get to what’s known as gender parity by using targets or quotas. Instead, the bank credits a five-year diversity plan – now in its fourth year – along with an extensive system of employee networking groups.

“We don’t have quotas per se or a policy around specific percentages or anything like that,” Paulo Maia, president and chief executive officer of HSBC Canada said in an interview. “This is within our DNA.”

Observers hope 2015 will be a turning point in the effort to get more companies in corporate Canada to look like HSBC – particularly in the wake of new rules from the Ontario Securities Commission.

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Some observers also believe that ethnic diversity will flow naturally from the rules that focus on gender, but experts aren’t so sure.

Starting in 2015, companies whose shares trade on the Toronto Stock Exchange will be required to explain what actions they’re taking to recruit women directors and senior executives.

Firms that don’t have policies in place will be required to explain the omission, but they won’t face any sanctions.

The rules, unveiled by the OSC in the fall, are being adopted by stock market regulators across the country, with the exception of Alberta and British Columbia.

“What the regulations have done is force people to have the conversation that they need to be having,” said Alex Johnston, executive director of Catalyst Canada.

Barely 16 per cent of board seats in corporate Canada are held by women, according to a 2013 survey by Catalyst Canada, non-profit group, which is dedicated to expanding opportunities for women in business.

Approximately 40 per cent of companies had no women board directors, the latest poll found.

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Catalyst Canada has issued a call to action for companies to increase the overall proportion of seats held by women to 25 per cent by 2017. To date, Canada’s big banks, as well as the country’s top law and accounting firms have signed on to the pledge, known as the Catalyst Accord.

It’s similar to an effort in the U.K. known as the 30 per cent club, which aims to have the boards of FTSE 100 companies comprised of 30 per cent women by the end of 2015. (That’s up from 23 per cent this year.)

This combination of heightened awareness, international initiatives, and the OSC rules, will help increase women’s visibility in corporate Canada, Johnston said.

“There’s never one silver bullet,” said Johnston. “The rules are very important and have crystallized momentum over the last 12 months in a way that we had not yet seen. At the same time, people were already on this and had been taking steps in their organization a number of years ago to diversify their boards and have rigorous conversations around talent.”

There is optimism about the OSC’s approach, but disclosure regimes don’t provide any guarantees, said Aaron Dhir, associate professor at York University’s Osgoode Hall Law School and currently a visiting professor at Yale Law School.

Dhir is the author of Challenging Boardroom Homogeneity: Corporate Law, Governance, and Diversity, to be published by Cambridge University Press in 2015.

“For the rule to be effective, regulators will need to play an active role,” Dhir said. “They’ll need to actively monitor the disclosures, especially the explanations for deviations from the prescribed practices. They’ll also need to engage in ongoing discussions with firms about governance diversity.”

Dhir’s study found quotas to be effective in Norway, which instituted a law in 2008 requiring listed firms to have 40 per cent female directors. The sanctions for non-compliance were stiff – the Norwegian government had the power to dissolve firms that did not comply. None were reported.

Directors who were initially reluctant eventually supported the law and the use of quotas, once the results became clear, Dhir said.

“In the opinions of the Norwegian directors I interviewed, there’s been a real difference in the effectiveness of boards in terms of decision-making and monitoring the CEO and management when you have directors that don’t come from the old boys’ network,” Dhir said.

“There was also a sense this was necessary, that the only way things were going to change would be to use this type of tough regulation.”

The E.U. is currently considering a 40 per cent quota rule, measures that would apply to about 5,000 listed companies in the EU by 2020 and state-owned companies by 2018.

The disclosure around gender diversity may also help companies’ leadership ranks become more ethnically diverse, said Pamela Jeffrey, head of the Canadian Board Diversity Council.

“I think the conversation will evolve quite quickly into one where best talent is talked about not only in terms of gender but visible minorities and aboriginal status and persons with disabilities,” Jeffrey said. “The broader definition of diversity, I think will come to the fore.”

Figures show that visible minorities held just 2 per cent of board seats, despite accounting for about 19 per cent of the Canadian population, Jeffrey said.

The OSC, too, is hopeful that the new rules will have a broader impact.

“My hope is that the encouragement that we are providing for women on boards will lead to greater diversity in general terms,” OSC chair Howard Wetston said in an interview when the OSC unveiled the new rules in the fall.

Dhir is skeptical.

In 2010, the U.S. Securities and Exchange Commission began requiring listed U.S. companies to report on whether they consider diversity in nominating directors and, if so, how. The SEC, however, didn’t specify what it meant by diversity.

Dhir examined the annual disclosures S&P 100 companies over four years and found that while 98 per cent comply with the rule, only about half talk about gender, race, or ethnicity.

Most of the time, they talk about experiential diversity – as in, the board seeks diversity in terms of directors’ prior professional experience.

“When companies comply with legal requirements they generally tend to do what is asked of them. If a rule asks them to discuss diversity, they’ll do that, but they will define it on their own terms. In the case of U.S. companies, they did not go the extra step of talking about gender and race more than half of the time” Dhir said.

“Similarly here if the rule doesn’t specify that companies must consider and discuss race and ethnicity, I’m skeptical that they will, though I certainly hope I’m wrong.”

Other jurisdictions are considering rules that deal with race. In the U.K., business secretary Vince Cable is said to be considering a rule that would require one in every five board directors of FTSE 100 companies to be from a non-white background within five years.

At HSBC Canada, the trio of women in the company’s top ranks includes: chief operating officer Sandra Stuart; Linda Seymour, executive vice president and country head of commercial banking, and Betty Miao, executive vice president and head of retail banking and wealth management.

The groups, each of which includes a senior executive, are responsible for bringing awareness and training programs to the company’s 5,500 employees. They are also meant to be a place where employees can openly discuss workplace issues, provide feedback to the bank’s top executives, and hone their networking and leadership skills for when positions higher up the ranks become available.

“You have to build that culture from the bottom up so you have candidates ready when the job is available,” Seymour said. “It’s also sends a signal in the marketplace that we do value diversity and we do think it’s important to have a diverse workforce. That attracts people to the organization.”

The groups are a core part of a five-year diversity plan that began four years ago.

HSBC won’t reveal how much it spends on this program, but emphasizes that each employee group has its own budget – and decides how to spend int.

“It’s not just senior leadership saying we’re going to spend money on this. It’s the group says we want to do this type of training or put on this event,” Seymour said.

“The core ingredient is really the leadership of it. You have to have people willing to invest the time and drive the initiatives. You can’t just throw money at this, you have to have the heart and soul of people believing that this is the right thing to do for the organization.”

Maia is adamant this approach benefits the company’s bottom line, but he concedes that it’s difficult to quantify.

HSBC Canada is a “crown jewel” of the HSBC group, Maia said, adding that it is one of the profitable for the parent company, which operates in 74 countries.

“We’ve been doing well at growing the business in spite of all the challenges in the economy,” Maia said.

Diversity to continue to be a priority at HSBC Canada, Seymour said.

“We asked, ‘How do we get people engaged?’ and that’s how we built out the plan,” she said. “At the end of five years we will look at it again and say, ‘How do we build on this? How do we take it to the next level?’”

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